Category: Real estate

The quarterly report by Knight Frank India, Federation of Indian Chambers of Commerce & Industry (FICCI) and National Real Estate Development Council (NARDECO) captures the perceptions and expectations of industry leaders in order to judge the sentiment of the real estate market.

After the splendid success of IRB InvIT Fund IPO, now the India Grid InvIT IPO is all set to capture the segment. IndiGrid InvIT Fund IPO was incorporated in the year 2016. It is an infrastructure investment trust (InvIT), which was established to own inter-state power transmission assets in India. Their central point of attention is mainly on providing constant and reasonable distributions to their unitholders. IndiGrid Trust plans to raise Rs 2,250 crore through an initial public offer (IPO). The Trust not only allows infrastructure developers to deleverage their balance sheets but also refinance remaining debt at a low rate of interest.

It has been sponsored by Sterlite Power Grid Ventures Ltd, which is one of the topmost leading companies operating in the private sector, with great experience in bidding, designing, financing, constructing and maintaining power transmission projects across India.

The sponsored company owns 11 inter-state power transmission projects with a total network of 30 power transmission lines of approximately 7,733 circuit km and 9 substations having 13,890 MVA of transformation capacity.

It is to provide a loan to BDTL and JTCL for the repayment or prepayment of debt of banks, financial institutions, SGL1, SGL2.

The other object of the issue is the repayment of any other long term and short term liabilities and capital expenditure creditors.

Ratings

IndiGrid InvIT Fund IPO is provided with the corporate credit rating of “AAA”/Stable by Crisil, “IrAAA”/Stable by ICRA and IND “AAA”/Stable by India Ratings.

What are InvITs?

An InvIT is a new capital market product promoted by the Government to enable Infrastructure Developers to free up tied-up capital.InvITs are designed to attract low-cost long term capital from FIIs, Insurance and Pension Funds and the DIIs (mutual funds, Banks) which will also benefit to HNIs .

To a large extent, all its revenues are derived from tariff payments received from LTTCs. So, if there is any delay in payments of the point of connection, then the charges to the CTU by the users and customers may affect the resultant cash flows and operations.

The potential of the project managers is to ensure that its power transmission systems are fully operational at all the times may be subject to the limitations of the power grid, existing equipment or operational risks outside of their control.

The initial portfolio asset may not achieve the projected financial performance referred to in the financial projections, which could deeply affect its ability to meet its projected distributions to its Unitholders.

Grey market premium

Currently Grey market premium is Rs. 5 /-

DISCLAIMER

No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here.

The real estate sector enters into the next level and became more effectual in all over the country. It got its own regulator from May 1, 2017. All the states and Union Territories in India will have its own Regulatory Authority (RA) which will make rules and regulations as per the amendments to the Act. But, unfortunately, till few of the states haven’t notified the rules in their state and many have not yet established a Regulatory Authority too. Few of the states have even reduced some of the provisions of the Act.

Till May 1, 2017, only 13 states and Union territories had notified their final rules. And it has been said that if the states will not establish the regulatory authority, the government will designate any officer or most probably the secretary of housing department.

Real Estate Regulatory Agencies (RERA) came to help the buyers to get their own property at the right place and at a right time.

About Advertisements made by the builders

When the projects get over then the builders were supposed to get the completion certificate and occupancy certificate and the selling of the property would take over the next step through advertisements. It has been declared that suppose if completion certificate is to be given in 3 months from the starting date, then the builder should have to register if they want to sell the property post-May 1, 2017

In the projects which are going on or are in the process, the builder can advertise but with the permission of state government. As in Maharashtra RERA, the section 3 of the Act suggests that registration is must until and unless they are not allowed to advertise the projects or sell, market, offer it one or the other way. And they have got only 90 days to book without obtaining a registration number.

Projects which are being worked on

The promoter of the project is required to apply for registering the incomplete projects within a period of 3 months from the date of commencement of the Act which is applicable to all the projects which are going on or being worked on or for which the completion certificate has not been issued as on the date of commencement of this Act.

Also, even if the properties are booked earlier but not got the possession yet, then it should be first registered by the RERA. And in this case, the promoter or the builder or the seller is required to give a revised date of completion which should be equivalent to the amount of development completed.

The ongoing project simply means the project which is in the process of their completion or the project whose certificated are not yet issued. These exclude the projects which attain the following point of reference:

It may be the state where common areas and facilities have been handed over to the association of allottees or the competent authority, suppose for maintenance of the areas.

Where sale or possession letter of minimum 60 of the apartments in the project have been carried out.

The builder or the promoter of an ongoing project has to requisitely register it within 90 days from the date of commencement of the Act in the state and must give the following details:

The promoter is required to give every detail to the Regulatory Authority about the total amount collected from the allottees and the total amount spent till now and the total balance left to him.

The running status of the project that is development till date and the pending information should be provided by the promoter.

The promoter must open up about the exact size of the apartment based on carpet areaeven if sold on any other basis such as super area, super built up area, built up area etc.

The promoter has to deposit 70% of the amounts already collected from the allottees but not been utilized for construction of the project or the land cost for the project in the different bank account.

Always ensure it as a builder

Firstly the thing which any builder must ensure that the ongoing projects in the state are been registered by RERA or not. If not, it shouts immediately get registered.

Then the builder should check the required completion date and the date of commencement of the project so that proper certificates would be provided.

IRB InvIT Fund is commonly a registered Infrastructure Investment Trust which comes under the InvIT Regulations. At first they aim to own, operate and maintain a portfolio of six tolls – road assets in the Indian states of Maharashtra, Gujarat, Rajasthan, Karnataka and Tamil Nadu. These toll roads are operated and maintained further by NHAI.

It is one of the largest infrastructure development and construction companies in India in terms of net worth in the roads and highways sector according to the NHAI’s annual prequalification for public-private partnerships in national highway projects report for 2015.

The offer will also consist of a fresh issue worth Rs 4,300 crore and an offer for sale of 34.6 crore units at the upper end of the price band, with a greenshoe option that allows the InvIT to retain over-subscription of 25% of the issue size.

Three-fourths units out of the total are reserved for institutional investors and the remaining units for non-institutional investors.

Bids can be made for a minimum of 10,000 units and in multiples of 5,000 thereafter.

Risks

In the case of a decrease in tax these factors like a hike in fuel prices, a hike in toll fees and a decrease in frequency of travelers would be affected more and due to this, there would be a bad impact on the business prospects, financials and results of operations.

Another risk changes in tax benefits for InvITs.

And the other risk would be inflation, which increases the operational and maintenance costs and will have a bad effect on the financials.

Dividend policy where investors may get rewards

Minimum of 90% of the cash flow which can be distributed of the SPV shall be distributed to the InvIT in proportion to its holding in the SPV.

Minimum 90% of the cash flow must be distributed to the unit holders.

Within 15 days of the declaration of dividend, is should be paid. And the distributions to the unit holders are made after every 6 months.

Reasons to invest in an IRB InvIT Fund IPO (Positive Points)

It has diversified road project portfolio and revenue base.

It has experienced management team with industry experience.

It has higher growth opportunities and access to Sponsor’s portfolio.

It is the first company to get approval from SEBI under InvIT.

The trust has good credit rating.

Reasons not to invest in an IRB InvIT Fund IPO (Negative Points)

It is not clear that how one would get the invested amount back after a particular time period suppose 15-20 years.

They do not have carried out conclusive documents regarding the formation of transactions, the debt financing agreements, the ROFO/ROFR Deeds, and the Future Asset Agreement.

Valuation

IRB Infrastructure attempt to find an enterprise valuation of Rs 7,900 crore in its prospectus, but lowered it to Rs 5,924 crore for listing, a 16% discount to the independent valuation.

But according to the report, InvIT listing will get the company Rs 1,700 crore in advance and will allow it to repay Rs 3,300 crore of debt. It will slow down its net debt by Rs 5,000 crore and bring down its debt to equity ratio to 1.8 times from 3 times. The secured debt of the company will also go down to approximately 16% to Rs 12,600 crore from its March 2016 level.

Conclusion

In spite of the fact that InvIT is the trust where the minimum amount to be invested is Rs. 10 lakhs, the investors may get ready to invest in this for their long term investment depending on their asset allocation and risk.

DISCLAIMER

No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here.

The Government had been working on easing regulations on REITs and InvITs to encourage more investors to India’s capital-starved property sector.

REITs or InvITs are expected to acquire billions of dollars for the country’s real estate and infrastructure segments. These are listed entities that invest in rent-yielding assets and distribute most of their income to shareholders as dividends.

RBI to soon allow banks to invest in REITs, InvITs; to issue detail guidelines by end of May.

1.Sebi has put in place regulations for REITs and InvITs and requested RBI to allow banks to participate in these schemes.

2. REITs are investment instruments for real estate which are comparable to a mutual funds.

3. InvITs are mutual funds like institutions that enable investments into the infrastructure sector by pooling small sums of money from multitude of individual investors for directly investing in infrastructure so as to return a portion of the income (after deducting expenditures) to unit holders of InvITs, who pooled in the money.

Recently, SEBI notified norms allowing mutual funds to invest in REITs and InvITs in order to attract more investors. The existing scheme intending to invest in units of REITs/InvITs will have to follow these norms. The SEBI circular would come into force with immediate effect. As per the guidelines the following rules need to be followed:

A Mutual fund would be able to invest only up to 5 percent of its net asset value in units of a single issuer of REIT or InvITs.

The maximum allowed investment in the alternative instruments by a single fund would be capped at 10 percent.

Planning to buy home for the first time? Well here’s some good news for you. If your income is up to Rs. 18 lakh per annum, your first house will cost about Rs 2.4 lakh less as the government will subsidise a part of your home loan interest.

The government has reportedly worked out on the two new subsidy schemes which were announced last year, under the Prime Minister Awas Yojana (PMAY). These schemes until now available only to those earning up to Rs 6 lakhs per annum, will henceforth apply to all buyers based on the income bracket under which they fall. The scheme will apply to loans taken for a period of up to 20 years, as against the earlier set limit of 15 years.

The aim of this initiative is to accelerate the real estate market and achieve “Housing for all by 2022”.

The schemes are being governed by the two agencies namely, National Housing Bank (NHB) and the Housing and Urban Development Corporation (HUDCO).

Benefits for homebuyers

The homebuyers will get subsidy at different rates as per the income bracket they are in.

People earning less than Rs 6lakh per annum will get a subsidy of 6.5 percentage points on a principal component of Rs 6 lakh, irrespective of their total loan amount. For instance, if a person borrowed money at 9% interest, he will pay only 2.5% interest on Rs 6 lakh, and 9% on the remaining Rs. 3,00,000.

The next group of people earning up to Rs 12 lakh per annum will get interest subsidy of 4 percentage points on a principal component of Rs 9 lakh and under the highest income category of Rs 18 lakh per annum, home-buyers can avail a subsidy of three percentage points on a principal component of Rs 12 lakh.

Assuming an interest rate of 9%, the net benefit to all the three categories over a 20-year loan tenure is roughly Rs 2.4 lakh, with a reduction of around Rs. 2200 in the monthly Instalments. These PMAY subsidies will be in addition to the income tax benefits on home loans which can go up to Rs 61,800 per annum for someone in the 30% tax bracket.

For the low-income group, the government has subsidised around 18,000 first time homebuyers, at a cost of around Rs 310 crore. However, with the inclusion of the middle-income category, the disbursal rate is expected to rise.

The Modi government’s agenda of affordable housing and its aim to provide ‘Housing for All’ by 2022, made the realtors and home buyers to expect much from the budget. They were expecting, tax incentives for first-time home buyers and higher tax savings on housing loans. But unfortunately, the budget not only missed out on these things, but with its proposals it is also believed to have discouraged investors from investing in second or more homes.

The budget proposals have restricted the taxpayers to avail the tax exemption on the interest paid on housing loans in case of rented out properties.

Under the existing provisions, the interest on housing loan paid in respect of a rented property (including deemed to be let out property) is allowed to be set off completely and in case where the rental income is less than the interest on housing loan, it could be set off with income from any other source —salary, business income, etc., resulting in reduction in tax liability.

This provision allows the tax payer to substantially save on his total income tax payable on rental income as well as total income.

Now, the budget has proposed to cap tax breaks on interest paid on rented homes at Rs 2 lakh a year from 1 April, 2018. The move, therefore, is likely to affect the buyers who invested in property with this tax benefit as the associated tax savings through deductions will no longer be available.

As a result, individuals, will now abstain from investing in house property thereby affecting the overall realty sector.

Let’s understand the whole phenomena mathematically, Suppose, you have taken a loan for a second home with an interest outgo of Rs 4 lakh last year. If you had rented out the house for Rs 15,000 a month, or Rs 1.8 lakh a year, you were allowed to set-off or adjust the entire loss of Rs 2.2 lakh (Rs 4 lakh – Rs 1.8 lakh) against your salary income or any other source of income.

From 1 April 2018, the set-off you can claim will be capped at Rs 2 lakh, even if the loss extends beyond this limit. However, you will be allowed to carry forward the remaining losses not claimed for up to eight years. This effectively removes an anomaly that allowed individuals buying second homes on loan to enjoy higher tax relief than those buying for own use.

This will have a two-sided effect, firstly, it can slash down the property prices in a significant way and secondly, it will discourage individuals who can invest in property for renting out to the needy.

The reform will affect the individuals who tried to avoid taxes by taking heavy home loans. This change in tax rules will restrict them from doing so.

Investors in property lose some benefits

The threshold limit of Rs 2 lakh will affect individuals who have recently taken heavy home loans and are in the initial days of repayment when the interest component comprises a chunk of the EMIs.

Another disappointing news for landlords is that the tenants will now have to deduct 5% TDS on rent exceeding Rs 50,000 a month. But this will have an impact on a small group of investors only as the rent limit is set higher.

The above points prove that investing in real estate is not so favourable post budget reforms. However, the Budget has given some relief on capital gains taxation on immovable property by lowering the holding period for long-term capital gains to two years which was earlier set at three.

This brings out that the homeowners have to pay tax at lower rates i.e. 20% after indexation benefit, on capital gains at the time of selling the house after two years. Earlier, they would have incurred tax at the marginal rate if property was sold within three years. They can now sell their properties earlier to avail exemption in taxes. this will also bring more inventory in the real estate sector.

Another change is made regarding the base year for indexation of capital gains which is proposed to be shifted from 1 April 1981 to 1 April 2001 for all classes of assets including immovable property. This change will result in more accurate computation of acquisition cost of the house while claiming indexation benefits at the time of sale. This will further reduce the tax burden on capital gains.

There is an overall positive impact on this sector. Government committed to double farmer income in five years.

The companies like Escorts, HMT, and VST Tillers fall under this sector.

Banks ( Public Sector )

There is a positive impact on overall banks public sector. Resolution of financial firms amendments to help banking sector. Government allocated Rs 10,000 crore for recapitalization of PSU banks.

The banks like SBI, Bank of Baroda, and PNB fall under this sector.

Cement – Major

There is positive impact on this sector. Government allocated Rs 3.96 lakh crore for infrastructure.

Such as UltraTech Cement, Shree Cements, and Ambuja cements comes under this sector.

Cigarettes

Government hikes excise duty on various lengths of cigarettes by 2.5% & 6%. Thus, this sector shows negative impact.

The cigarette companies like ITC, Godfrey Phillip, and VST are few examples of this sector.

Computers – Software – Training

Government hiked allocation for women skill development to Rs 1.84 lakh crore in FY 2018. It’s all ready to set up 100 India-International skill centres. Government to undertake reforms in UGC to improve higher education. It is creating innovation fund for secondary education. Thus, there is a positive and good impact on this sector.

The companies like Zee Learn, Aptech, and NIIT falls under this category.

Construction & Contracting – Civil

National highway allocation at Rs 64,000 crore. So, this sector proves to be a positive impact.

Such as the companies like NCC, Ashoka Buildcon, and Hind Construction are the examples of civil sector.

Construction & Contracting – Housing

Instead of build-up area, carpet area will be counted for affordable housing.Government proposes to finish 1 crore houses by 2019 for those living in kachcha houses. Economic Survey: Over Rs 16,000 crore made available to self-help groups. Hence, there is positive impact on this sector.

The companies like Ashiana housing, Peninsula, and Land Nila comes under this sector.

Construction & Contracting – Real Estate

Government proposes to make changes in capital gains tax for housing. Re-financing of housing loans to give impetus to real estate sector. Affordable housing to be given infra status. Thus, there is a positive impact on this sector.

The real Estate companies like DLF, Oberoi Realty and Godrej Prop are few examples of this sector.

Engineering & Capital goods

Government doubles lending target of banks to Rs 2.44 lakh crore. Government allocated Rs 3.96 lakh crore for infrastructure, announces a new trade infrastructure export scheme. So, there is a positive impact on this sector.

The companies like Larsen, Adani Ports, and Siemens are few examples of this sector.

Electric Equipment

Economic Survey shows that over 20 crore LED bulbs have been issued via Ujjwala Yojana. Hence, there is good impact on this sector.

The companies like Havells India, Crompton Greave, and Techno Electric falls under this sector.

Electricals

Defence expenditure excluding pension at Rs 2.74 lakh crore. Therefore, it creates a good impact on this sector.

Bharat Electricals, CG Consumer, and Genus Power are few examples of this sector.

Engineering

Positive impact is shown by this sector, as government proposes to invest Rs 1.31 lakh crore in railways in 2017-18.

Few examples of this sector are Quess Corporation, Shanthi Gears, and LG Balakrishnan.

Fertilizers

Government will take steps to make sure farmers get better prices for harvest. Government committed to double farmer income in five years. Economic Survey shows that focus of government has been holistic development of Agriculture. Thus, this shows us a positive impact on fertilizer sector.

The companies like Coromandel Int, GSFC, and GNFC falls under this sector.

This sector is showing good impact as government is going to set up dairy processing fund.

Nestle, Britannia, and GlaxoSmith Con are few of the food processing companies which comes under this sector.

Hospitals & Medical Services

This sector is not showing positive impact. New rules for pricing medical devices should benefit common man.

Apollo Hospital, Fortis Health, and Narayana Hruda are the few examples of this sector.

Hotels

5 special tourism zones are to be set up in partnership with states. Thus, goods results are going to be announced soon by this sector.

The Hotels like Indian Hotels, EIH, and Mahindra Holiday comes under this sector.

Infrastructure – General

Government is trying to expand airport capacity over next 10-15 years, with participation of private sector. There would be Increase in allocation for infrastructure. At least 25 stations re-development contracts will be awarded in 2017-18. Thus, good impact is shown by this sector.

Companies like Larsen, Adani Ports, and Siemens are few examples of this sector.

Refineries

Government will cut basic customs duty on LNG to 2.5% from 5% and proposes to create integrated PSU oil major. This shows positive impact on this sector.

Government is all ready to set-up new crude oil reserves. It shows a positive impact to this sector.

ONGC, GAIL, and Cairn India are few of the oil drilling and exploration companies.

Personal Care

Government raises allocation for MNREGA from Rs 38500 crore in FY 2017 to Rs 48000 crore in FY 2018. A good impact is shown by this sector.

Companies like HUL, Godrej Consumer, and Dabur India comes under this sector.

Plastics

Long-term irrigation fund set up in NABARD, additional corpus Rs. 20,000 crore which is showing a very good impact on this sector.

Supreme India, Astral Poly Tech, and Jain Irrig (D) are few plastic companies which fall under this sector.

Power – Generation & Distribution

A positive impact is there in this sector. Countervailing duty on machinery for renewable energy cut to 6%. Focus on solar continues as 7000 stations to be solar powered. Government is going to take up second phase of solar power development for additional 20,000 MW.

Such as NTPC, Power Grid Corporation, and NHPC are the few companies which come under this sector.

Power – Transmission & Equipment

Government is going to achieve 100% rural electrification by May 1, 2018. Thus, positive impact is shown by this sector.

GE T&D India, Kalpataru Power, and GE Power India are few of the power transmission and equipment companies.

Real Estate

Government reduces existing tax rate for personal income of Rs 2.5-5 lakh to 5% from 10%. Government doubles lending target of banks to Rs 2.44 lakh crore. So, there is a positive impact on this sector.

Companies like Aditya Birla, DLF, and Oberoi Realty fall under this sector.

Retail

Government reduces existing tax rate for personal income of Rs 2.5-5 lakh to 5% from 10%. It is showing a good impact on this sector.

Aditya Birla, Future Retail, and Trent are few companies which come under this sector.

Textiles – Denim

Economic Survey reveals that Rs 6,000 crore were announced to boost employment & exports in apparels industries, which results in the very good impact on this sector.

The companies like Arvind and Nandan Denim fall under this sector.

Textiles – General

Government proposes to carry-forward the MAT to 15 years from 10 years, which will show a positive impact on the companies like Bombay Rayon, Sutlej Textiles, and Garware Wall.

Transport & logistics

There is a positive impact on this sector as transport sector allocated Rs 2.41 lakh crore.

Interglobe Avi, Container Corp, and Aegis Logistics are few of the companies in this sector.

Inspiring Physical Assets:The holding period of long-term capital gains tax on immovable properties has been brought down from 3 years to 2 years. And the government of India proposes to revise the base year for the calculation of long-term capital gains tax from 1981-2001.

Tax slab for individuals: The government has offered to reduce the income tax rate on individuals which fall under the slab of Rs 2.50 to Rs 5 lakhs from 10% to 5%. Moreover the government has also reduced the tax rebate which is provided to the individuals who are earning up to Rs 5 lakhs from 4000 to Rs 2500 for the individuals who are earning up to Rs 3.50 lakhs. This means that the person having annual income up to Rs 3 lakhs has zero tax liability. Also when the person has annual income of Rs 4.5 lakhs and invests Rs 1.5 lakhs, then also they will have zero tax liability. Mentioned in section 80C.

All other categories to get uniform benefit of Rs12,500 per person; to levy surcharge on income bracket Rs50 lakh-Rs1 crore

Non-tax proposals

Additional debt product for senior citizen: government has introduced a new scheme for the senior citizen that gives the assurance of 8% return.

Fiscal deficit: Aspiring target to get a fiscal deficit of 3.2% in the recent financial year and would be 3% in the financial year 2017-18.

Cashless/digital society: The government of India is going to promote its payment banking app which would be named as “Bhim” through freebies like referral benefits, bonuses and cash back on downloads. Also it is mandate to do transactions less than Rs 3 lakhs.

Suppressing Cyber crime: The government is all set to make a team called computer emergency reform to determine cybercrime prevalent in the financial services industry.

More CPSE ETFs in the line-up: After getting immense response from the latest FFO of CPSE ETF, the government is likely to come out with more of the same in the financial year 2017-18.

Integration of cash and derivative market: The government is all ready to form an expert committee to integrate equity and derivative markets.

Preference of financial sector: it has been told by the FM that the government is committed to grow financial sector through stronger institutions.

Other interesting facts of FY 2016-17

Out of 4 crore salaried individuals, only 1.74 crore of them filed the filed the tax returns. Also, out of 5. Crore business professionals, only 1.81 crore of them had filed the tax return which feels really sad to know.

Total of 13.94 lakhs companies are there out of which only 5.97 lakhs company have filed their tax returns. Out of these 5.97 lakhs only 28000 of them declared profits between Rs 1 crore and Rs 10 crore.

Out of total 3.97 crore individuals, 99 lakhs of then earn less than Rs 2.5 lakhs annually, 1.95 crore earn between Rs 2.5 lakhs to Rs 5 lakhs and 56 lakhs take home between Rs5 lakhs and 10 lakhs. In a year, only 24 lakhs people earn more than 10 lakhs.

Only 1.72 lakhs people are showing their income more than Rs 50 lakhs per year.

2 crore Indian people went to abroad last fiscal. India is largely a tax non-complaint society.

Affect of Demonetization

After demonetization, 1.09 crore accounts received deposits between Rs 2 lakhs – Rs 80 lakhs and 1.48 lakhs account received more than Rs 80 lakhs. The finance minister said that these accounts would be specially surveyed and transactions would be studied.

The real estate suffers a lot these days. 2016 ends up bad for them. But hope doesn’t have any end. Many expectation are there in the year 2017 for the real estate industry.

Real estate saw an immense change this year, especially on the policy front. Few of the massive game changing policies such as GST and RERA have cleared the obstacles on their way and and moved towards the execution in full speed.

The demonetization has created a substantial confusion among all. But by implementing Benami Transactions Act, it assures to bring clarity in the real estate sector.

Real estate investment trust (REIT) has assured to open up the real estate market to smaller investor in the upcoming years and now there will be much focus on the affordability in housing sector. India’s Tier-I cities moved up to the 36th rank in JLL’s biannual Global Real Estate Transparency Index in 2016 due to improvements in structural reforms and liberalization of the foreign direct investment (FDI) policy.

Policy Chassis

Demonetization

After the announcement of demonetization on 9th November, the old currency notes of 500 and 1000 were withdrawn from the banks as a legal tender. After this act, the real estate transaction has been slow down, especially in the land and capital raising business.

Real Estate (Regulation & Development) Bill

The parliament passed Real Estate Regulatory Agency (RERA) in the month of March, 2016. All the states of India including union territories had a last date for the implementation of the act i.e. 1 year from the date the bill passed. This will bring clarity to the real estate sector than never before.

REITs

Real estate investment trusts (REITs) will help small investors to invest in Grade-A commercial real estate across India. In budget 2016-17 dividend distribution tax (DDT) has been excluded on special purpose vehicles (SPVs). Rules for REITs were relaxed, and the investment cap in under-construction projects was raised from 10% to 20%.

Benami Transactions Act

This new law is applicable to curb black money. It has a provision that persons indulging in benami transactions may face upto 7 years of imprisonment and fine but, the amended has only 3 years of imprisonment or fine or both. Also the law states that, providing the false information is punishable by imprisonment upto 5 years and fine.

The amendment gives the right to the government to usurp the properties or assets held in the name of another person to avoid the tax responsibility and conceal the unaccounted wealth. The act covers the properties such as tangible, intangible, movable or immovable and also comprehend any right or interest in those properties.

Goods and Services Tax

The GST is the single-largest taxation reform in modern India, and assures to blot out geographical barriers for businesses by lighten the differences in indirect taxes relevant within the various states in India. The deadline for the implementation of the act is 1st April, 2017.

Commercial Real Estate

As per the demand made by the public, the space requirements for office in sectors such as FMCG, manufacturing, logistics, etc.. had improved a lot in 2016 and it should be same as in next coming years. Commercial real estate sector is heading their business towards the highest level o growth these days and doing a great job. Depreciation of the INR versus the USD and Euro is likely to play a major role in this.

The office space needs of technology and outsourcing firms (especially in software development) slowed down in 2016. The step taken for the growth of top technology firms was in single digits due to global uncertainty and technological interruption.

The coming year 2017 is will continue to increase the acceptance of new technologies across the business. Hence, the ratio between growth of a business and its real estate requirements are going to be changed, as technology is becoming a disturbing element across the sectors. The technology is becoming more process-driven rather than people-driven.

As India is improving on the ‘ease of doing business’ rankings and policies are made more investor-friendly, so higher FDI is suppose to rule into India very soon. The Modi government’s focus on wooing foreign investment is helping. Demand has been steady so far – and if GDP growth is maintained as it is, then demand will definitely rise up.

Residential Real Estate

A pan-India trend that came out in the year 2016 was that a higher number of units were sold every quarter (1Q16-3Q16) than new project launches in the same period. A very few of the new launches helped to reduce the inventory project. The result of demonetization changes in the fourth quarter readings being intensely different from the first three quarters once they get in.

Since, the old currency notes of 500 and 1000 are not in use now, that is why, home buyers or investors using unaccounted wealth to carry out transactions in cash would be in difficult situation, and developers accepting cash components are facing a higher liquidity crunch than those accepting all payments through cheque or bank transfer.

In cities, especially in Hyderabad, Pune and Bengaluru, Capital Values (CVs) saw an affable appreciation in 2016 and this will definitely be continued in the coming years as the residential markets are being mature and become more end-user-driven than ever before. Sales are going to remain constant throughout the year. It is suppose to rise up from 2H2017 after the settlement of demonetization, which has made many buyers hold on to their purchase decisions as they are waiting for the slowdown of the capital values in residential sector.

Retail Real Estate

Supply was approximately 2 times less than the absorption in the year 2016. 14 poor malls closed down in the past few quarters or getting spruce up into office buildings and shopping centers in the cities like Delhi and Mumbai, the retail space across key Indian cities stood at 75.8 million sft as of 3Q16.

2017 is likely to see the highest mall space becoming operational, second to 2011. High levels of activity are expected 2017 onwards, after a prolonged slowdown from 2014 that lasted through 2016. This slowdown was the result of very few malls getting completed in these three years, and also due to poorly-performing malls shutting down. All three segments of retail – apparel, F&B (food and beverage) and entertainment & cinema perform well in 2016. High streets and malls saw more and more people eating out, which helped the F&B category. Delhi and Mumbai led this growth. Entertainment and cinema also saw a good performance this year.

Various brands like LeEco have filed applications with the Foreign Investment Promotion Board to set up their company-owned stores across India. Brands are also looking at expanding their production activity in the country. This is one of the various requirements of the government, as per our prime ministers ‘Make in India’ prospect.